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2. INEQUALITY AND PROGRESSIVE TAXATION. A city's population consists of a lower socio-economic class (10 identical members, each with $50 incomes), a middle class (10 members, $100 incomes), and an upper class (5 members, $200 incomes).

2. INEQUALITY AND PROGRESSIVE TAXATION. A city's population consists of a lower socio-economic class (10 identical members, each with $50 incomes), a middle class (10 members, $100 incomes), and an upper class (5 members, $200 incomes).

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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2. INEQUALITY AND PROGRESSIVE TAXATION. A city's population consists of a lower socio-economic class (10 identical members, each with $50 incomes), a middle class (10 members, $100 incomes), and an upper class (5 members, $200 incomes). Class # Members Total Class Income % of Total Income Lower ($50 income) Middle ($100 income) Upper ($200 income) 10 500 20% 10 1000 40% 5 1000 40% ΤΟΤALS 25 2500 100% a) Draw a fully-labeled Lorenz Curve. b) A randomly selected person from this city has an expected income of $. fractions rather than decimals to find this expected value quickly! c) If we break up the population into five quintile (with 20% of the population in each), then the lowest quintile accounts for HINT: Use % of the total income in the city, and the middle quintile accounts for % of the total income. d) Suppose the city uses a progressive income tax to redistribute income from the upper class to the lower class. Specifically, it takes $100 from each of the 5 upper class members and gives $50 to each of the 10 lower class members. Now the lowest quintile would amount for _% of the total income in the city. e) Draw the updated Lorenz Curve. HINT: You should be able to sketch it quickly. O
Transcribed Image Text:2. INEQUALITY AND PROGRESSIVE TAXATION. A city's population consists of a lower socio-economic class (10 identical members, each with $50 incomes), a middle class (10 members, $100 incomes), and an upper class (5 members, $200 incomes). Class # Members Total Class Income % of Total Income Lower ($50 income) Middle ($100 income) Upper ($200 income) 10 500 20% 10 1000 40% 5 1000 40% ΤΟΤALS 25 2500 100% a) Draw a fully-labeled Lorenz Curve. b) A randomly selected person from this city has an expected income of $. fractions rather than decimals to find this expected value quickly! c) If we break up the population into five quintile (with 20% of the population in each), then the lowest quintile accounts for HINT: Use % of the total income in the city, and the middle quintile accounts for % of the total income. d) Suppose the city uses a progressive income tax to redistribute income from the upper class to the lower class. Specifically, it takes $100 from each of the 5 upper class members and gives $50 to each of the 10 lower class members. Now the lowest quintile would amount for _% of the total income in the city. e) Draw the updated Lorenz Curve. HINT: You should be able to sketch it quickly. O
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